Managing Your Money

RMDs – That ½ Year Birthday is Going to Cost You


Imagine you’re retired and don’t need to withdraw any of your 401(k), 403(b) or IRA money. You can simply leave that money inside those accounts to continue growing tax deferred. Until…the calendar year you achieve age 70½.

Starting in that year – and for every year following – you must take a minimum withdrawal from your tax advantaged retirement accounts (except Roth-IRA’s). To calculate what this Required Minimum Distribution (RMD) amount is, each year you take the account value on the last day of the prior year and divide that amount by the “magic” number from an IRS table. To use that table, use your age on the last day of the year.

So, where do these “magic” numbers in the government table come from? The RMD table, which is used by everyone, married or single, provides a life expectancy number for someone who is married and whose spouse is 10 years younger. This joint life expectancy number represents both lives. That makes it significantly higher than a single life expectancy number would be, which is good. The higher the number, the smaller the amount you have to remove from the account.

When the chart for a 70-year-old says 27.4, that assumes he or she is married to someone 10 years younger and 27.4 years is the joint life expectancy for both.

Then there’s what I call the “Tony Randall” rule. You may remember this star of the 70s TV sitcom, The Odd Couple. At age 75, Randall married Heather Harlan, a 25-year-old intern at his theater program. Because they were married and the actual age difference between he and his bride was more than 10 years, persnickety “Felix” was able to use the regular joint life expectancy table for calculating his RMD. Mr. Randall, clever man he, went from dividing his retirement account balance by 22.9 (the magic number for a 75-year-old) to 58.2 (the joint life expectancy for a 75-year-old and 25-year-old married couple).

Meet Larry. Larry turns age 70 ½ on June 25 of this year. His minimum withdrawal for this year is calculated by dividing the value of his IRA ($75,000 at the end of last year) by the age factor from the table based on his age at the end of this year. In this example, since Larry will be 71 on December 31st of this year, his age factor will be 26.5 (see table). Therefore, Larry must withdraw at least $2,831 from his IRA for this year. This calculation has to be done each year in this fashion. Failure to take this required minimum distribution incurs a penalty equal to 50% of what should have been withdrawn or $1,416 in this case. Ouch!

In his first RMD year (and that year only), Larry can take the RMD either in that year or by April 1st of the following year. If he delays taking the RMD until the following year, two RMDs would be due that year. Not a bad idea if his taxable income substantially lowers in that second year. (Not sure what constitutes “taxable income?” Click here.)

If Larry has multiple IRA accounts, he can add their values together each year, calculate the RMD of that total and then take the withdrawal from any of the IRA’s. He can aggregate 401(k) accounts together and 403(b) plans together in the same fashion, but he has to treat each type of account separately.

Lastly, if Larry is still working at age 70 ½ or older, his account with that employer’s retirement plan isn’t subject to the RMD rules until the year he retires. However, all of his other accounts will be subject to the required minimum distribution.
Dan Galli, president, Financial Planning Association of Massachusetts, is a CERTIFIED FINANCIAL PLANNER™ from Daniel J. Galli & Associates of Norwell, MA and can be reached at This article does not offer tax advice. Consult your professional advisors before taking action.

Securities and investment advisory services offered through Ameritas Investment Corp (AIC) Member FINRA/SIPC. Daniel J. Galli & Associates is not affiliated with AIC. Additional products and services may be available through Daniel J Galli or Daniel J Galli & Associates that are not offered through AIC.

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